About 18 months ago, Vanguard got into factor-based exchange traded funds with six actively managed, though still cost-effective funds. One of those entrees is the

VFMF seeks to provide long-term capital appreciation by investing in stocks with relatively strong recent performance, strong fundamentals and low prices relative to fundamentals, according to Vanguard, the second-largestU.S. ETF issuer.

Following an initial screen for favorable volatility traits, VFMF emphasizes the value, momentum, and quality factors in an effort to beat the Russell 3000 Index. At the end of the first quarter, VFMF had $82 million in assets under management,according to Vanguard data.

Multifactor strategies are effectively looking for stocks that have an attractive combination of different characteristics like low valuations, strong recent price performance or momentum, strong quality, things like that, said Morningstarin a recent note.

VFMF holds nearly 630 stocks and like many multi-factor strategies, there is an introduction of the size factor. The median market value of the Vanguard ETFs holdings at the end of the first quarter was 8.5 billion compared to $74 billion on the Russell 3000. VFMF is not confined to large-cap stocks and does not purport to be.

The portfolio includes a diverse mix of stocks representing many different market capitalizations (large, mid, and small), market sectors, and industry groups, and holds hundreds of names to diversify idiosyncratic stock risk, according to Vanguard.

Relative to the Russell 3000, VFMF is overweight consumer discretionary and industrial stocks while being noticeable underweight the technology and financial services sectors.

VFMF could continue drawing a following because of its low fee. At 0.18% per year, or $18 on a $10,000 investment, the fund is significantly cheaper than the average competing actively managed multi-factor strategy, which charges 1.06%.

And true to Vanguards nature, it is a very low-cost strategy, said Morningstar. It charges 18 basis points. And I think this is a really good core holding even though it sits in the Morningstar mid-cap blend category; because its offering full market-cap coverage, I think this could be a good replacement for even a large-cap index fund.